Waves Corporation Limited

Waves Corporation Limited (PSX: WAVES) was previously known as Waves Singer Pakistan Limited. It was established as a public limited company under the repealed Companies Ordinance, 1984 (now Companies Act, 2017). Its history dates back to the 1970s. The company manufactures and assembles domestic consumer appliances in addition to retailing and trading the same and other light engineering products.

Shareholding pattern

As at December 31, 2021, over 48 percent shares are held under the directors, CEO, their spouses and minor children. Within this category, a major shareholder is Mr. Haroon Ahmad Khan, the CEO of the company. The general public owns over 37 percent shares while another over 10 percent shares are owned by joint stock companies. The remaining close to 4 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has experienced a fluctuating topline over the years. Gross margin has also been fluctuating, particularly in the last six years, while net margin has gradually disappeared. Operating margin grew slightly between CY16 and CY20, before declining in CY21 entirely.

Revenue in CY18 nearly doubled year on year to reach almost Rs 6 billion in value terms, from last year’s Rs 3 billion. This growth was attributed to an increase in volumes and better pricing. On the other hand, this did not reflect in a better gross margin that was recorded at a lower 9.2 percent compared to 12.8 percent in CY17, due to production cost consuming nearly 91 percent of revenue. While operating margin was also lower, it was only marginal as there was considerable reduction in distribution expense as a share in revenue in addition to higher other income that was largely sourced from dividend income. With a curtailment in finance expense as a share in revenue, net margin was higher at 7.5 percent versus 6.25 percent in CY17.

In CY19, revenue reached close to Rs 7 billion as it registered a growth of almost 14 percent. This was again attributed to an improvement in volumes. With cost of production down to 87.3 percent, the company improved its gross margin to 12.7 percent. It must be noted that refrigerators and deep freezers are the two major revenue drivers for the company. In addition, growing middle class, changing lifestyles and short product cycles in also expected to fuel this demand. The higher revenue, although reflected in the gross margin, net margin, however, was down to 3.8 percent due to an escalation in finance expense that consumed 12 percent of the topline.

Revenue contracted marginally in CY20 by 1.7 percent. This can be attributed to the outbreak of the Covid-19 pandemic that altered consumer spending preferences. Overall, as well, the size of the home appliance consumer market reduced. With production cost down to 78 percent of revenue, gross margin reached 21.8 percent for the year. However, net margin was lower at 1.6 percent as other income reduced significantly since dividend income disappeared entirely, while finance expense continued to consume a larger share in revenue.

In CY21, on an unconsolidated basis, the financial statements of the company did not show any topline as the company had approved the decision to have the home appliances division as a separate entity to ensure a more focused approach. On a consolidated basis, though, the company saw a topline of Rs 12 billion. Profit from discontinued operations in unconsolidated financial statements stood at Rs 374 million for the year.

Quarterly results and future outlook

On an unconsolidated basis, the bottomline was supported by other income in the first quarter of CY22, with net profit standing at Rs 41 million compared to Rs 93 million in the same period last year. In the first quarter of CY21, bottomline saw a profit of Rs 117 million from discontinued operations that was entirely absent in the current period. On a consolidated basis, though, topline was higher by 25 percent recorded at Rs 3.3 billion versus Rs 2.6 billion in the previous year. This can be attributed to the fact that the revenue that was adversely affected by the outbreak of Covid-19 pandemic and its resultant impact on demand, had now recovered. However, net margin was marginally lower at 3.3 percent compared to 3.9 percent due to an increase in administrative and finance expense.

The company has also acquired new premises for expansion and is shifting its manufacturing operations. Additionally, as home appliances become a separate entity, it will enable the company to have a more focused approach and operate efficiently. Moreover, the company’s retail business- Electronic Marketing Company Limited (EMCL) may also be listed on the stock exchange of the country at an appropriate time, for funding expansion plans. Due to the fast-developing trend of e-commerce, the company is also looking to engage in online sales to reach out to a wider audience and provide consumer convenience.